Why is a SAFE good for investors?

The SAFE is useful as a simple, relatively well-balanced document to enable early-stage companies to quickly and easily raise funds from friends, family and angel investors without the complications associated with priced equity rounds, such as establishing a value for the company, or with debt instruments, such as the …

Is a SAFE note good for investors?

Offer Better Benefits for Investors Since SAFE notes are converted into preferred stock, often at a discounted price, investors have a lot of incentive for using them. Investors could end up with benefits that are actually better when compared to their original investment.

Why might a company and investor agree to using a convertible note or SAFE agreement instead of a priced offering for equity?

Instead of the startup offering shares to the investors, it offers a convertible note, which is a loan to the company. This protects the investor against receiving only a minuscule amount of ownership in the company because the valuation of the future priced equity round gets set so high.

What is a convertible SAFE note?

A SAFE note is a convertible security that, like an option or warrant, allows the investor to buy shares in a future priced round. It addresses many of the drawbacks and challenges posed by convertible notes and can be an equitable option for investors and founders.

What is the difference between convertible note and equity?

The difference is that the convertible note is a debt instrument (or loan) that converts to equity. The SAFE simply provides the right to purchase equity at a capped price (possibly with a discount) during a future equity funding event.

Why convertible notes are safer than safes?

The most significant difference is that SAFE notes prescribe a specific conversion method while convertible notes offer varying conversion terms. SAFE notes convert into the next round of preferred stock that the company issues in the subsequent priced financing round.

Why do companies offer convertible notes?

Companies issue convertible bonds to lower the coupon rate on debt and to delay dilution. A bond’s conversion ratio determines how many shares an investor will get for it. Companies can force conversion of the bonds if the stock price is higher than if the bond were to be redeemed.

Are convertible notes good?

Convertible notes are destructive when used carelessly. Having too many notes or poorly structured notes outstanding can put your company and later negotiations at risk by complicating your cap table. Convertible notes are great for speed in Seed rounds, but they must be well thought out to avoid problems later on.

Should you invest in a safe or a convertible note?

The SAFE can convert when you raise any amount of equity investment. This is nice for simplicity, but it doesn’t give the control to the entrepreneur, which is why the convertible note looks to be the best choice for seed investment in this category.

What are the benefits of a safsafe convertible note?

SAFE has many similar features to the well-established convertible notes, such as provisions for early exit (change of control), economic benefits such as the Discount and protection features such as the Valuation Cap.

Are safe notes a good option for startup investors?

It addresses many of the drawbacks and challenges posed by convertible notes and can be an equitable option for investors and founders. Startups may prefer SAFE notes because, unlike convertible notes, they are not debt and therefore do not accrue interest.

What is a convertconvertible note?

Convertible Note is a debt instrument that the investors can use later on to buy the equity of the company. These notes are issued in the initial stages of a company. It is a short-term debt financing instrument. It acts as an IOU.